Southwest Airlines 2009 Annual Report Download - page 34

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The recent revenue initiatives implemented by the Company have enabled it to partially offset the loss of
full fare traffic versus the prior year and thus minimize the year-over-year decline in unit revenues. During 2009,
the Company launched a new and improved website at southwest.com, introduced EarlyBird check-in, which
allows Customers to pay $10 to automatically get an assigned boarding position before general check-in begins,
introduced new fees for unaccompanied minors and for pets, and continued to optimize its schedule and tout its
Bags Fly Free campaign. The Company believes these and other planned programs and processes will create
substantial opportunities for future revenue growth. Based on results thus far in January 2010 and current
booking trends for the remainder of the quarter, the Company expects a year-over-year increase in unit revenues
for first quarter 2010.
Consolidated freight revenues decreased $27 million, or 18.6 percent, versus 2008. This decrease primarily
was due to fewer shipments as a result of the recent worldwide recession. This prevented the Company from
being able to increase its shipping rates during 2009. During the majority of 2008, better economic conditions
enabled the Company to increase its shipping rates when fuel prices were rising. The Company currently expects
a slight increase in consolidated freight revenues during first quarter 2010 versus first quarter 2009, primarily due
to an anticipated increase in shipments. “Other revenues” increased $11 million, or 3.3 percent, compared to
2008. The majority of the increase was due to revenues from recent initiatives, such as recently implemented fees
for unaccompanied minors and for pets, revenue from the Company’s EarlyBird initiative, and an increase in the
fee charged for Customers checking a third bag. The Company expects Other revenues for first quarter 2010 to
also exceed first quarter 2009, due to these recently implemented revenue initiatives.
Operating expenses
Consolidated operating expenses for 2009 decreased $486 million, or 4.6 percent, compared to a 5.1 percent
decrease in capacity. Historically, except for changes in the price of fuel, changes in operating expenses for
airlines are largely driven by changes in capacity, or ASMs. The following presents the Company’s operating
expenses per ASM for 2009 and 2008 followed by explanations of these changes on a per-ASM basis and/or on a
dollar basis (in cents, except for percentages):
2009 2008
Increase
(decrease)
Percent
change
Salaries, wages, and benefits .......................... 3.54¢ 3.23¢ .31¢ 9.6%
Fuel and oil ........................................ 3.11 3.60 (.49) (13.6)
Maintenance materials and repairs ...................... .73 .70 .03 4.3
Aircraft rentals ..................................... .19 .15 .04 26.7
Landing fees and other rentals ......................... .73 .64 .09 14.1
Depreciation and amortization ......................... .63 .58 .05 8.6
Other ............................................. 1.36 1.34 .02 1.5
Total ......................................... 10.29¢ 10.24¢ .05¢ .5%
The Company’s 2009 CASM (cost per available seat mile) was up slightly from 2008, increasing by a net .5
percent. However, 2009 operating expense included the impact of Freedom ’09, the early retirement plan offered
by the Company, which resulted in a $66 million charge recorded during third quarter 2009. Excluding the
impact of this charge, 2009 CASM was flat compared to 2008 as lower fuel costs were offset by higher airport
costs and by higher wage rates paid to nearly all Employee groups. Based on current cost trends and an estimated
five to six percent decline in first quarter year-over-year capacity, the Company anticipates first quarter 2010 unit
costs, excluding fuel, to exceed fourth quarter 2009’s unit cost of 7.45 cents and is expecting the year-over-year
increase to exceed the 8.6 percent year-over-year increase the Company experienced in fourth quarter 2009.
Salaries, wages, and benefits increased $128 million on an absolute dollar basis, including the $66 million
charge recorded during third quarter 2009 as a result of Freedom ’09, the early retirement plan offered by the
Company that was accepted by 1,404 Employees. Excluding the impact of the Freedom ’09 charge, the majority
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